Components of a Financial Plan
February 12, 2025
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The goal of personal finance is to accumulate wealth and then disseminate it at the right time in order to meet specified goals. Most investors try to accomplish all their goals within their lifetime. However, sometimes their goals may be leftover post their death or when they have become medically unfit. Similarly, there may be money left over after a person dies. Since the money belongs to the investor, it is imperative that it be spent according to the wishes of the investor post their death or when they are medically unfit to make those decisions themselves.
Personal financial planning provides the tools required to ensure that the hard-earned money of the investor is spent in accordance with their wishes even if they are not medically capable of making such decisions. These tools are called estate planning. In this article, we will understand what estate planning is and how it helps in completing the unfinished tasks of personal finance.
The bottom line is that estate planning is not only for the rich but even for middle-class people who may have assets such as a house, their retirement accounts, etc. which will be distributed amongst their descendants after their death.
Many people die an early death because of various unfortunate circumstances. Alternatively, they may also face conditions in which they may become medically unfit to make decisions. In such situations, it is important to have an estate plan in force. Obtaining the correct type of insurances before such an adverse event takes place is also a part of estate planning.
Similarly, there is a limited power of attorney which allows the other person to only make decisions about certain financial assets. Similarly, there is a medical power of attorney which allows another person to make decisions about euthanasia and keeping the health care needs of the investor, in the event that they become incapacitated.
In case, the assets that they have are indivisible, then they may be liquidated with the acceptance of both parties or after a time period lapses. In some cases, a trust may be set up, the assets may be invested in a certain way and only the earnings from the assets may be given to the beneficiaries.
The bottom line is that estate planning is an integral part of overall financial planning. It might be inconvenient or even difficult to think about situations in which the estate plan may have to be executed. However, good investors give priority to this plan as it helps make them prepared for every situation.
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